Is Inventory Optimization an Unending Pursuit? (Part 3)

Think of it as an ongoing process that reflects and responds to changes in the business environment. The answers to the five questions discussed previously are a moving target. For example, today’s micro-segmentation strategy may not make sense tomorrow. For this reason, inventory optimization leaders are those companies that have created an ongoing capability to monitor conditions across the supply chain — from rising transportation costs to dramatic shifts in demand — and adjust inventory levels accordingly.

This is the area of performance that separates the leaders from the followers. Best-in-class inventory strategists continuously monitor and re-align their supply chain posture so that it reflects current business conditions. How many business failures could have been averted in the last two years if companies had responded more proactively to changing conditions?

Leading organizations are implementing a number of end-to-end process changes — including the use of interactive process playbooks and weekly plan-do-check-act cycles — to keep the inventory strategy on track. In the case of missed sales targets in one specific region or store, inventory strategies based solely on math algorithms might sense a forecast error and recommend short-term fixes such as shifting products within the supply Obviously this is an expensive proposition, especially in today’s environment of rising logistics costs.

Instead, best-in-class businesses have instituted a continuous process in which issues like regional sales declines due to poor stock management are not only addressed in the short term, but also eliminated in the longer term through an exhaustive root-cause analysis.

Drilling down through the supply chain, inventory strategists work to understand the reason for a local drop in sales by asking such questions as: What are the unique buying patterns in this region? How do prices and margins compare with other stores or geographic areas? Would a different SKU sell better? Can we shape demand through promotions?

With the advent of sophisticated modeling and analytics tools, inventory managers are also better equipped than ever to anticipate demand changes before they occur, and adjust inventory accordingly. By gathering data and insight from across the global, end-to-end supply chain, leading businesses can quickly sense and respond to changes in consumer behavior that are likely to have a significant impact on inventory levels.

For example, the swift and unprecedented drop in demand for high-tech consumer products in 2008 caught many suppliers unprepared. Saddled with high inventory levels and associated carrying costs that significantly eroded their gross margins, these businesses, as a result, will face long-term financial challenges. Not only did they lose money in the short term, but they will also have a hard time supporting the product innovations, consumer promotions and other initiatives that support future success.

For many businesses undertaking the challenge of inventory management, the journey ends at generating optimum inventory targets — and checking performance against these targets once or twice a year.

Gartner Inc. says SAP is gaining ground on Oracle and Salesforce.com with its new CRM 2007 release, but the latest rankings of sales force automation (SFA) software are notable for who's not on the list.

Gartner Inc. says SAP is gaining ground on Oracle and Salesforce.com with its new CRM 2007 release, but the latest rankings of sales force automation (SFA) software are notable for who's not on the list. Oracle's E-Business Suite and PeopleSoft CRM applications were dropped from the Stamford, Conn.-based research firm's annual Magic Quadrant, as were SAP's CRM On Demand and RightNow Technologies.

Oracle purchased Siebel and PeopleSoft in recent years. Both PeopleSoft's software and Oracle's own CRM tool traditionally placed high in Gartner's rankings, but this time, analysts were unable to validate that each had 15 new named customers actively deploying the applications in the past 12 months, as required by Gartner's criteria for the Magic Quadrant. "The bottom line is there are still offerings out there, but most of the action we see is with Siebel On Premise or Oracle On Demand," said Rob Desisto, vice president and distinguished analyst with Gartner and author of the report. "There's not enough independent validation that that stuff meets the bar. Those offerings can't keep pace with Siebel or Oracle On Demand -- or the rest of the market for that matter."

Gartner ranks erp software vendors in four categories. Leaders are vendors that excel in both ability to execute and completeness of vision; challengers have the ability to execute but lack strong vision; visionaries are market-thought leaders, but they struggle with functionality issues; and niche players concentrate on just one or two specific segments of the SFA market, but do it well. Gartner listed San Francisco-based Salesforce.com and Oracle's Siebel CRM as the sole leaders in the quadrant.

Microsoft Dynamics CRM, SAP and Sage's SalesLogix were the three challengers. Oracle's CRM On Demand and Landslide Technologies were positioned in the visionaries quadrant, and the rest -- SageCRM, NetSuite, ACT, Infor, Pivotal, SugarCRM, GoldMine, Maximizer Software and Consona -- were all listed as niche players. SAP made the most progress since last year with its new CRM release. "With CRM 2007, they've really improved their user interface," Desisto said. "What it's done is given people who have implemented SAP as a suite the opportunity to go back to their users and say, 'Hey look at the improvements here; this is not the typical SAP you've known.' " SAP CRM On Demand was dropped from the rankings, however, also because it didn't meet study inclusion requirements. Gartner could not validate that it had 100 customers or at least 15 new named customers in the past 12 months. SAP has shifted its emphasis with on-demand or Software as a Service (SaaS), redirecting its efforts to Business ByDesign, a fully on-demand suite, although SAP revealed in May that it is scaling back development on that application as well.

Others are making progress, but Siebel, Salesforce.com and SAP remain the top choices, according to Gartner. "Microsoft is clearly breathing down [Siebel's and Salesforce.com's] neck here," Desisto said. "NetSuite has done OK, but they're in the broader ERP suite play. SugarCRM innovated with open source, but here again, when I get called on short lists, the typical suspects always pop up." Looking ahead, Desisto expects on-demand deployments to continue to predominate, with a majority of users ultimately accessing their applications over the Internet. "If you look at SFA, it's going to be very hard to compete without an on-demand offering," he said. "Salesforce, Oracle, Microsoft, NetSuite, Pivotal, Sage, even SAP -- all these guys, they all have on-demand options.

The writing's clearly on the wall." Other vendors were dropped from the study for different reasons. RightNow Technologies, which traditionally focused on the customer service and call center side of CRM until it purchased Salesnet, was dropped because it did not focus its application on B2B selling organizations. Two others were also dropped: Entellium, because Gartner could not validate that it had a deployment of more than 100 users; and Saratoga, because it was acquired by CDC, owner of Pivotal.

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